EUR/USD holds above 1.1100 on fresh USD selling ahead of Fed Powell

• EUR/USD draws some buying dips on Friday amid Fed-inspired USD slide.
• Euro bulls appear unaffected by rising bets for more ECB interest rate cuts.
• Investors are now looking to Fed Chairman Jerome Powell’s speech for a significant boost.

The EUR/USD pair is regaining positive traction on the last day of the week and for now appears to have halted its retreat from the vicinity of a more than one-year high reached on Wednesday. Spot prices are currently trading around the 1.1125 region and are being supported by the emergence of fresh selling around the US dollar (USD).

Data released Wednesday showed that U.S. job growth in the year to March was significantly weaker than initially estimated. Adding to this, a rise in initial weekly US jobless claims further indicated a cooling labor market, which, along with a drop in US manufacturing PMI, suggested the economy was at risk of a slowdown. This in turn reaffirms market bets for an imminent start to the Federal Reserve (Fed) rate cut cycle in September and fails to help the USD capitalize on the good overnight rebound from the YTD low. This, to a greater extent, overshadows Thursday’s mixed Eurozone PMI prints and is proving to be a key factor providing support to the EUR/USD pair.

In fact, the preliminary HCOB composite PMI for the euro area, compiled by S&P Global, came in at 54.1 compared to estimates of 53.5, although it marked a slight decline from 54.3 the previous month. That said, business activity in Germany – the eurozone’s largest economy – contracted for the second straight month and by more than expected. In addition, negotiated wage growth in the euro area slowed to 3.55% for Q2 2024, from 4.74% in Q1 2024. This in turn strengthens the case for two more interest rate cuts from the European Central Bank (ECB) this year. . This could prevent traders from placing aggressive bullish bets around the common currency and limit any significant appreciation movement in the EUR/USD pair.

Meanwhile, accounts of the ECB’s July policy meeting showed that the September meeting was widely seen as a good time to reassess the level of monetary policy restrictions. In addition, ECB Governing Council member Martins Kazaks expressed confidence in inflation returning to 2%, as well as concerns about the economy, and said he was ready to discuss another interest rate cut at the September meeting . Therefore, any further move higher could continue to face some resistance, although bearish sentiment around the greenback could continue to act as a tailwind for the EUR/USD pair.